<PAGE>
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

(Mark One)

[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

For the quarterly period ended September 29, 2002

                                       OR

[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

For the transition period from                       to
                               ---------------------    ------------------------

                         Commission File Number: 0-19594

                          INSURANCE AUTO AUCTIONS, INC.
                          -----------------------------
             (Exact name of registrant as specified in its charter)

Illinois                                                              95-3790111
--------------------------------------------------------------------------------
(State or other jurisdiction of                                 (I.R.S. Employer
incorporation or organization)                               Identification No.)

850 East Algonquin Road, Suite 100, Schaumburg, Illinois              60173-3855
--------------------------------------------------------------------------------
(Address of principal executive offices)                              (Zip Code)

                                 (847) 839-3939
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)


         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
                                                          [X]  Yes        [ ] No


                      APPLICABLE ONLY TO CORPORATE ISSUERS

Number of shares outstanding of each of the issuer's classes of common stock, as
of October 31, 2002:

                Class                          Outstanding October 31, 2002
                -----                          ----------------------------
    Common Stock, $0.001 Par Value                   12,245,849 shares


<PAGE>


                                      INDEX

                          INSURANCE AUTO AUCTIONS, INC.

                                                                     PAGE NUMBER
                                                                     -----------

PART I.  FINANCIAL INFORMATION ...........................................     3

Item 1.  Financial Statements ............................................     3

         Condensed Consolidated Statements of Operations for the
              Three Month and Nine Month Periods ended September 29, 2002
              and September 30, 2001 .....................................     3
         Condensed Consolidated Balance Sheets
              as of September 29, 2002 and December 30, 2001 .............     4
         Condensed Consolidated Statements of Cash Flows for the
              Nine Month Periods ended September 29, 2002 and
              September 30, 2001 .........................................     5
         Notes to Condensed Consolidated Financial Statements ............     6

Item 2.  Management's Discussion and Analysis of Financial Condition
              and Results of Operations ..................................     9
         Overview ........................................................     9
         Critical Accounting Policies ....................................    10
         Results of Operations ...........................................    10
         Financial Condition and Liquidity ...............................    12
         Factors That May Affect Future Results ..........................    13

Item 3.  Quantitative and Qualitative Disclosures about Market Risk ......    16

Item 4.  Controls and Procedures .........................................    16

PART II.  OTHER INFORMATION ..............................................    17

Item 1.  Legal Proceedings ...............................................    17

Item 2.  Changes in Securities ...........................................    17

Item 3.  Defaults upon Senior Securities .................................    17

Item 4.  Submission of Matters to a Vote of Security Holders .............    17

Item 5.  Other Information ...............................................    17

Item 6.  Exhibits and Reports on Form 8-K ................................    17

SIGNATURES ...............................................................    18

                                       2
<PAGE>


                          INSURANCE AUTO AUCTIONS, INC.
                                AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                     (in thousands except per share amounts)

<TABLE>
<CAPTION>
                                                        THREE MONTH PERIODS ENDED        NINE MONTH PERIODS ENDED
                                                      -----------------------------   -----------------------------
                                                      SEPTEMBER 29,   SEPTEMBER 30,   SEPTEMBER 29,   SEPTEMBER 30,
                                                         2002             2001            2002            2001
                                                      -----------------------------   -----------------------------
                                                               (UNAUDITED)                     (UNAUDITED)
<S>                                                     <C>             <C>             <C>             <C>
Revenues:
     Vehicle sales                                      $  13,459       $  32,618       $  58,269       $ 109,777
     Fee income                                            39,327          38,348         123,487         114,547
                                                        ---------       ---------       ---------       ---------
                                                           52,786          70,966         181,756         224,324
Cost and expenses:
     Cost of sales                                         12,669          31,651          53,528         103,570
     Branch cost                                           30,609          30,986          94,802          89,026
                                                        ---------       ---------       ---------       ---------
                                                           43,278          62,637         148,330         192,596
                                                        ---------       ---------       ---------       ---------
         Gross profit                                       9,508           8,329          33,426          31,728

Operating expense:
     Selling, general and administration                    6,279           6,623          20,261          20,744
     Amortization of intangible assets                         86           1,013             220           3,024
     Business transformation costs                          2,068             668           6,254             752
     Special charges                                            -               -               -           6,047
                                                        ---------       ---------       ---------       ---------

     Earnings from operations                               1,075              25           6,691           1,161

Other (income) expense:
     Interest expense                                          38             441             762           1,353
     Interest income                                          (81)           (205)           (220)           (888)
                                                        ---------       ---------       ---------       ---------

     Earnings before income taxes                           1,118            (211)          6,149             696

Provision for income taxes                                    479              (5)          2,642             376
                                                        ---------       ---------       ---------       ---------

     Net earnings (loss)                                $     639       $    (206)      $   3,507       $     320
                                                        =========       =========       =========       =========

Earnings per share:
     Basic                                              $     .05       $    (.02)      $     .29       $     .03
                                                        =========       =========       =========       =========
     Diluted                                            $     .05       $    (.02)      $     .28       $     .03
                                                        =========       =========       =========       =========

Weighted average shares outstanding:
     Basic                                                 12,244          12,077          12,223          11,868
     Effect of dilutive securities - stock options            308               -             305             158
                                                        ---------       ---------       ---------       ---------
     Diluted                                               12,552          12,077          12,528          12,026
                                                        =========       =========       =========       =========

Other data
     Gross proceeds                                     $ 181,518       $ 167,937       $ 572,670       $ 511,390
                                                        =========       =========       =========       =========
</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                       3
<PAGE>


                          INSURANCE AUTO AUCTIONS, INC.
                                AND SUBSIDIARIES

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                (in thousands except share and per share amounts)
<TABLE>
<CAPTION>

                                                                   SEPTEMBER 29,    DECEMBER 30,
                                                                       2002            2001
                                                                   -------------    ------------
<S>                                                                  <C>             <C>
ASSETS                                                              (Unaudited)
Current assets:
     Cash and cash equivalents                                       $  16,635       $  24,467
     Accounts receivable, net                                           44,780          54,674
     Inventories                                                         8,719          13,505
     Short-term investments                                                  -           2,131
     Other current assets                                                2,181           4,165
                                                                     ---------       ---------
            Total current assets                                        72,315          98,942
                                                                     ---------       ---------

Property and equipment, net                                             45,419          39,240
Deferred income taxes                                                    8,076           7,827
Investments in marketable securities                                         -             512
Intangible assets, net                                                   1,797           1,617
Goodwill, net                                                          130,474         129,522
Other assets                                                               106             544
                                                                     ---------       ---------

                                                                     $ 258,187       $ 278,204
                                                                     =========       =========
LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
     Accounts payable                                                $  32,149       $  41,451
     Accrued liabilities                                                11,921          10,920
     Accrued special charges                                               791           1,245
     Obligations under capital leases                                    1,838               -
     Current installments of long-term debt                                 42          20,040
                                                                     ---------       ---------
         Total current liabilities                                      46,741          73,656
                                                                     ---------       ---------

Deferred income taxes                                                   14,046          12,172
Other liabilities                                                        2,820           3,279
Obligation under capital leases                                          1,362               -
Long-term debt, excluding current installments                              70             103
                                                                     ---------       ---------
         Total liabilities                                              65,039          89,210
                                                                     ---------       ---------

Shareholders' equity:
     Preferred stock, par value of $.001 per share
         Authorized 5,000,000 shares; none issued                            -               -
     Common stock, par value of $.001 per share
         Authorized 20,000,000 shares; issued and outstanding
         12,245,749 and 12,162,290 shares as of
         September 29, 2002 and December 30, 2001, respectively             12              12
     Additional paid-in capital                                        143,794         142,575
     Accumulated other comprehensive income (loss)                        (572)              -
     Retained earnings                                                  49,914          46,407
                                                                     ---------       ---------
         Total shareholders' equity                                    193,148         188,994
                                                                     ---------       ---------

                                                                     $ 258,187       $ 278,204
                                                                     =========       =========
</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                       4
<PAGE>


                          INSURANCE AUTO AUCTIONS, INC.
                                AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (in thousands of dollars)
<TABLE>
<CAPTION>
                                                                                 NINE MONTH PERIODS ENDED
                                                                               SEPTEMBER 29, SEPTEMBER 30,
                                                                                   2002         2001
                                                                               ------------- -------------
                                                                                        (Unaudited)
<S>                                                                               <C>          <C>
Cash flows from operating activities:
Net earnings                                                                      $  3,507     $    320
Adjustments to reconcile net earnings to net cash
   provided by operating activities:
     Depreciation and amortization                                                   7,041        7,663
     Loss (gain) on disposal of fixed assets                                            30         (411)
     Special charges                                                                     -        6,047
     Loss on change in fair market value of derivative                                 450            -
     Changes in assets and liabilities (net of effects
       of acquired companies):
     (Increase) decrease in:
       Accounts receivable, net                                                      9,994       (4,291)
       Inventories                                                                   4,786       (4,993)
       Other current assets                                                          1,984       (1,495)
       Other assets                                                                    (61)          85
     Increase (decrease) in:
       Accounts payable                                                             (9,302)       3,877
       Accrued liabilities                                                            (369)      (4,167)
       Deferred income taxes, net                                                    1,625        1,032
                                                                                  --------     --------
         Total adjustments                                                          16,178        3,347
                                                                                  --------     --------
     Net cash provided by operating activities                                      19,685        3,667
                                                                                  --------     --------

Cash flows from investing activities:
   Capital expenditures                                                             (9,600)     (15,845)
   Investments, net                                                                  2,643        2,189
   Proceeds from disposal of fixed assets                                              175        3,975
   Payments made in connection with acquired companies,
     net of cash acquired                                                           (1,510)        (105)
                                                                                  --------     --------
     Net cash used in investing activities                                          (8,292)      (9,786)
                                                                                  --------     --------

Cash flows from financing activities:
   Proceeds from issuance of common stock                                            1,216        5,084
   Principal payments on long-term debt                                            (20,035)         (28)
   Principal payments on capital lease obligations                                    (406)           -
                                                                                  --------     --------

Net cash (used) provided by financing activities                                   (19,225)       5,056
                                                                                  --------     --------

Net decrease in cash and cash equivalents                                           (7,832)      (1,063)

Cash and cash equivalents at beginning of period                                    24,467       30,938
                                                                                  --------     --------

Cash and cash equivalents at end of period                                        $ 16,635     $ 29,875
                                                                                  ========     ========

Supplemental disclosures of cash flow information:
   Cash paid or refund during the period for:
     Interest                                                                     $  1,160     $  1,720
                                                                                  ========     ========
     Income taxes paid                                                            $  2,500     $      7
                                                                                  ========     ========
     Income taxes refunded                                                        $  3,860     $      -
                                                                                  ========     ========
   Non-cash financing activities:
     Capital leases                                                               $  3,606     $      -
                                                                                  ========     ========
</TABLE>

 See accompanying notes to condensed consolidated financial statements.

                                       5
<PAGE>


                          INSURANCE AUTO AUCTIONS, INC.
                                AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


1.     GENERAL

       The unaudited condensed consolidated financial statements of Insurance
       Auto Auctions, Inc. and its subsidiaries (collectively, the "Company")
       have been prepared on the same basis as the annual audited consolidated
       financial statements and, in the opinion of the Company, reflect all
       adjustments (consisting of normal recurring adjustments, except as
       otherwise described in Note 2) necessary for a fair presentation for each
       of the periods presented. The results of operations for interim periods
       are not necessarily indicative of results for full fiscal years.

       As contemplated by the Securities and Exchange Commission ("SEC") under
       Rule 10-01 of Regulation S-X, the accompanying consolidated financial
       statements and related notes have been condensed and do not contain
       certain information that is included in the Company's annual consolidated
       financial statements and notes thereto. For further information, refer to
       the consolidated financial statements and notes thereto included in the
       Company's annual report on Form 10-K for the year ended December 30,
       2001.

       Fiscal year 2001 consisted of 52 weeks and ended December 30, 2001.
       Fiscal year 2002 will consist of 52 weeks and will end on December 29,
       2002.

       Certain reclassifications have been made to the prior year financial
       information to conform to the current year presentation.

       Beginning this year, the Company has adopted a new presentation format
       for the Condensed Consolidated Statement of Operations. The purpose of
       this change is to provide greater clarity to current and historic
       results. The primary change relates to the breakdown of the Company's
       cost structure among purchase agreement vehicle cost, branch cost and
       selling, general and administrative operating expenses. The cost of the
       purchase agreement vehicles sold during the period is presented in the
       vehicle cost component. Branch cost represents those expenses related to
       operating individual branches including towing, yard and office labor,
       branch management, real estate and other related expenses. Selling,
       general and administrative expenses are now presented separately as well.

2.     SPECIAL CHARGES

       During the first quarter 2001, the Company announced an organizational
       realignment and recorded special charges of $6.0 million. As part of this
       plan, the Company recognized $2.4 million in employee termination
       benefits associated with a reduction in workforce along with $1.7 million
       related to the abandonment of certain facilities. The remaining balance
       includes amounts related to repositioning the Company's towing operations
       and other restructuring charges.

       The Company also recorded special charges of $2.4 million in the fourth
       quarter of 2001. This included the write-down of $1.4 million of
       unamortized leasehold improvements due to changes in the estimated useful
       lives of the assets. Also included was a $1.0 million write-off of
       amounts due from the Company's now bankrupt insurance carrier for damages
       sustained as a result of the airplane crash at the Company's Sacramento,
       California facility.

                                       6
<PAGE>



       During the fourth quarter of 2001, the Company reviewed the adequacy of
       its accruals for special charges. The facilities closing accrual was
       increased by $0.8 million. The accrual for workforce reduction was
       decreased by $0.4 million and the accrual for the towing operations and
       other charges was decreased by $0.8 million. The changes in the accruals
       for special charges related to the organizational realignment are
       summarized below.

<TABLE>
<CAPTION>
                                                               Workforce   Facility    Towing
                                                               Reduction   Closings   and Other     Total
                                                               ---------   --------   ---------     -----
                                                                              (in thousands)
<S>                                                            <C>         <C>         <C>         <C>
       Special charges recorded in first quarter of 2001       $ 2,376     $ 1,739     $ 1,932     $ 6,047
       Utilization of accrual in 2001                           (1,878)     (1,016)     (1,067)     (3,961)
       Adjustments recorded in the fourth quarter of 2001         (423)        838        (815)       (400)
                                                               -------     -------     -------     -------
       Total accrued special charges at December 30, 2001      $    75     $ 1,561     $    50     $ 1,686
       Utilization of accrual in 2002                              (75)       (841)         --        (916)
       Other                                                        --          --          21          21
                                                               -------     -------     -------     -------
       Total accrued special charges at September 29, 2002     $     -     $   720     $    71     $   791
                                                               =======     =======     =======     =======
</TABLE>



3.     INCOME TAXES

       Income taxes were computed using the effective tax rate estimated to be
       applicable for the full fiscal year, which is subject to ongoing review
       and evaluation by the Company.

4.     EARNINGS PER SHARE

       The Company incurred a net loss for the three months ended September 30,
       2001, therefore, options were excluded from the calculation of diluted
       earnings per share amounts because the effect would have been
       anti-dilutive. Had the Company reported income for the period, the
       Company would have reported an additional 195,000 dilutive shares
       outstanding in the form of stock options assumed exercised.

5.     ACQUISITION

       In July 2002, the Company acquired Southern Missouri Insurance Pool for
       $1.5 million in cash. The acquisition agreement provides for additional
       funds to be paid to the seller, in the future, depending upon the
       achievement of various performance expectations. The acquisition was
       accounted for as a purchase, and the results of operations are included
       in the Company's consolidated financial statements from the date of
       acquisition.

6.     GOODWILL AND INTANGIBLES

       Beginning in 2002, the Company no longer amortizes goodwill or any
       intangible assets with indefinite lives, in accordance with Statement of
       Financial Accounting Standards ("SFAS") No. 142. Instead, the Company
       tests these assets for impairment annually or when certain impairment
       indicators exist. In the nine months ended September 30, 2001, the
       Company recorded amortization expense related to intangible assets,
       primarily goodwill, of $3.0 million. In the nine months ended September
       29, 2002, the Company recorded amortization of identifiable intangible
       assets of $0.2 million. In accordance with SFAS No. 142, the Company
       completed the transitional impairment test of intangible assets during
       the second quarter of fiscal 2002. The results of this impairment test
       indicate no adjustment is required.

       As of September 29, 2002, the Company had amortizable intangible assets
       of $1.8 million dollars, which is comprised of $3.1 million of covenants
       not to compete, net of amortization of $1.3 million.

                                       7
<PAGE>

         The following table reflects the consolidated results adjusted as
       though the adoption of SFAS No. 142 occurred at the beginning of the
       nine-month period ended September 30, 2001.


<TABLE>
<CAPTION>

                                                        THREE MONTH PERIODS ENDED          NINE MONTH PERIODS ENDED
                                                        -------------------------------    ------------------------------
                                                        SEPTEMBER 29,     SEPTEMBER 30,    SEPTEMBER 29,    SEPTEMBER 30,
                                                               2002          2001               2002              2001
                                                        -------------- -----------------   -------------  ------------
                                                                     (dollars in thousands except per share amounts)
<S>                                                      <C>             <C>                  <C>           <C>
       Net income:
           As reported                                     $   639        $  (206)        $   3,507        $     320
           Goodwill amortization, net of tax effect              -            451                 -            1,345
                                                           -------        -------         ---------        ---------
       Adjusted net income                                 $   639        $   245         $   3,507        $   1,665
                                                           =======        =======         =========        =========

       Basic earnings per share:
           As reported                                     $   .05        $  (.02)        $     .29        $     .03
           Goodwill amortization, net of tax effect              -            .04              -                 .11
                                                           -------        -------         ---------        ---------
       Adjusted basic net income per share                 $   .05        $   .02         $     .29        $     .14
                                                           =======        =======         =========        =========

       Diluted earnings per share:
           As reported                                     $   .05        $  (.02)        $     .28        $     .03
           Goodwill amortization, net of tax effect              -            .04              -                 .11
                                                           -------        -------         ---------        ---------
       Adjusted diluted net income per share               $   .05        $   .02         $     .28        $     .14
                                                           =======        =======         =========        =========
</TABLE>


7.       FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

         The Company, as a matter of policy, does not enter into derivative
         contracts for trading or speculative purposes. During the first quarter
         of 2002, the Company entered into an interest rate swap to mitigate its
         exposure to interest rate fluctuations and to effectively fix its
         borrowing rate at 5.6%. The interest rate swap agreement has a notional
         amount of $30.0 million under which the Company pays a fixed rate of
         interest of 5.6% and receives a LIBOR-based floating rate. During the
         second quarter of 2002, the Company recorded a non-cash charge of $0.5
         million related to the change in fair value for a portion of its
         interest rate swap agreement which does not qualify for hedge
         accounting. The Company also recorded $0.1 million as a comprehensive
         loss related to the change in fair value of the remaining portion of
         its interest rate swap agreement which qualifies for hedge accounting.
         For the quarter ended September 29, 2002, the Company recorded a
         reduction of interest expense of $0.1 million related to the change in
         fair value associated with the portion of the Company's interest rate
         swap agreement that does not qualify for hedge accounting. The Company
         recorded an additional $0.5 million of comprehensive loss related to
         the change in fair value of the portion qualifying for hedge
         accounting.



                                       8
<PAGE>



8.       COMPREHENSIVE INCOME (LOSS)

         Comprehensive income consists of net earnings and the change in fair
         value of the Company's interest rate swap agreement as follows (in
         thousands):
<TABLE>
<CAPTION>

                                                   THREE MONTH PERIODS ENDED        NINE MONTH PERIODS ENDED
                                                   ---------------------------      -----------------------------
                                                   SEPTEMBER 29,  SEPTEMBER 30,      SEPTEMBER 29,   SEPTEMBER 30,
                                                       2002          2001                2002            2001
                                                   -------------   ---------        ------------- ---------------
<S>                                                  <C>           <C>                 <C>           <C>
         Net earnings (loss)                         $    639      $   (206)           $ 3,507       $     320
         Other comprehensive (loss)
           Change in fair value of interest rate
             swap agreement                              (813)            -             (1,004)              -
           Income tax benefit                             350             -                432               -
                                                     --------      ---------          --------       ---------
         Comprehensive income (loss)                 $    176      $   (206)           $ 2,935       $     320
                                                     ========      =========           =======       =========
</TABLE>

         The change in fair value of the Company's interest rate swap agreement
         for the nine-month period ended September 29, 2002 was due to a decline
         in interest rates.


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.

The discussion in this section contains forward-looking information that is
subject to certain risks, trends and uncertainties that could cause actual
results to differ materially from those projected, expressed, or implied by such
forward-looking information. In some cases, you can identify forward looking
statements by our use of words such as "may, will, should, anticipates,
believes, expects, plans, future, intends, could, estimate, predict, projects,
targeting, potential or contingent," the negative of these terms or other
similar expressions. The Company's actual results could differ materially from
those discussed or implied herein. Factors that could cause or contribute to
such differences include, but are not limited to, those discussed herein under
"Factors that May Affect Future Results" and in the Company's annual report on
Form 10-K for the fiscal year ended December 30, 2001.


OVERVIEW

         Insurance Auto Auctions, Inc. offers insurance companies and other
vehicle suppliers cost-effective salvage processing solutions on either a
consignment or purchase agreement method of sale. The consignment method
includes both a percentage of sale and fixed fee basis. The percentage of sale
consignment method offers potentially increased profits over fixed fee
consignment by providing incentives to both the Company and the salvage provider
to invest in vehicle enhancements, thereby maximizing vehicle selling prices.
Under the percentage of sale and fixed fee consignment methods, the vehicle is
not owned by the Company and only the fees associated with processing the
vehicle are recorded as revenue. The proceeds from the sale of the vehicle
itself are not included in revenue. Under the purchase agreement sales method,
the vehicle is owned by the Company, and the proceeds from the sale of the
vehicle are recorded as revenue.

         Since its initial public offering in 1991, the Company has grown
primarily through a series of acquisitions and opening of new sites to now
include 66 sites. During 2002, the Company established new facilities in
Oklahoma City, Oklahoma, Duluth, Minnesota and most recently in Baton Rouge,
Louisiana, which was announced earlier in September. In July, the Company
acquired Southern Missouri Insurance Pool located in Springfield, Missouri.

         The Company's operating results are subject to fluctuations, including
quarterly fluctuations, that can result from a number of factors, some of which
are more significant for sales under the purchase agreement method. See "Factors
That May Affect Future Results" below for a further discussion of some of the
factors that affect or could affect the Company's business, operating results
and financial condition.

                                       9
<PAGE>

CRITICAL ACCOUNTING POLICIES

         The preparation of the consolidated financial statements in conformity
with accounting principles generally accepted in the United States requires
management to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, as well as the related disclosures.
The Company bases its estimates on historical experience and on various
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates. As such, the Company
continuously evaluates its estimates. The Company believes the following
critical accounting policies are directly affected by the more significant
judgments and estimates used in the preparation of its consolidated financial
statements.

GOODWILL

         The Company has significant goodwill recorded in its consolidated
financial statements. The Financial Accounting Standards Board has issued new
pronouncements affecting goodwill and intangible assets. In accordance with the
new standards, the Company assesses goodwill for possible impairment on an
annual basis or whenever events or changes in circumstances indicate that the
carrying value of this asset may not be recoverable. Important factors that
could trigger an impairment review include significant under-performance
relative to expected historical or projected future operating results;
significant negative industry or economic trends; significant decline in the
Company's stock price for a sustained period; and a significant decline in the
Company's market capitalization relative to net book value. If the Company
determines that the carrying value of goodwill may not be recoverable based upon
the existence of one or more of the above indicators of impairment, the Company
would measure any potential impairment by comparing the implied value of
goodwill with the carrying amount of that goodwill. In accordance with Statement
No. 142, the Company completed the transitional impairment test for goodwill
during the second quarter of fiscal 2002. This test indicated no adjustment was
required.

DEFERRED INCOME TAXES

         The Company has determined that it may not realize the full tax benefit
related to the deferred tax asset. Therefore, a valuation allowance to reduce
the carrying value of the deferred tax asset has been recorded.


RESULTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 29, 2002 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 2001

         Revenues decreased 25.6% to $52.8 million for the three months ended
September 29, 2002, from $71.0 million for the same three month period in 2001.
The decline in revenues is primarily due to the Company's continued shift away
from vehicles sold under the purchase agreement method. Under the purchase
agreement method, the entire purchase price of the vehicle is recorded as
revenue compared to only recording the fees collected on the sale of a vehicle
under the lower risk consignment fee based arrangements. Vehicles sold under the
purchase agreement method accounted for less than 8.0% of the total vehicles
sold in the third quarter of 2002, versus approximately 19.0% for the same
quarter last year. Fee income in the third quarter increased 2.6% to $39.3
million versus $38.3 million in the same quarter last year. Gross proceeds from
the sale of salvage vehicles at auction were $181.5 million during the three
months ended September 29, 2002, an increase of $13.6 million, or 8.1% over the
same period last year.

         Cost of sales decreased $19.3 million to $43.3 million for the three
months ended September 29, 2002, versus $62.6 million for the same period last
year. Vehicle cost of $12.7 million is $19.0 million less than last year's
amount of $31.7 million. This decrease is primarily related to the Company's
shift away from vehicles sold under the purchase agreement method. Branch cost
of $30.6 million decreased $0.4 million from $31.0 million for the same period
last year. The reduction in costs primarily reflects an improvement in the
Company's variable cost structure.

                                       10
<PAGE>

         Gross profit of $9.5 million for the three months ended September 29,
2002 increased $1.2 million from $8.3 million for last year's comparable period.

         Selling, general and administrative expense of $6.3 million is slightly
less than the expense of $6.6 million in the third quarter of last year. This
decrease is the result of lower information services and general overhead
expenses.

         Amortization of intangible assets decreased significantly from $1.0
million in the third quarter of last year to $0.1 million in the current year
period. See Note 6 of the notes to condensed consolidated financial statements
above for further discussion of this change.

         Business transformation costs for the three months ended September 29,
2002 were $2.1 million versus $0.7 million in the same period last year.
Business transformation costs include expenses related to the systems redesign
project, the business process re-engineering project, severance costs and
accelerated depreciation associated with the Company's existing computer
infrastructure. In the third quarter of 2002, the most significant component of
business transformation costs is related to the implementation of the new
system.

         Interest expense of $0.1 million for the three months ended September
29, 2002, decreased $0.3 million from the comparable period in 2001. Included in
interest expense for the three months ended September 29, 2002, was a non-cash
benefit of $0.1 million to recognize the ongoing cost of the interest rate swap
on the Company's unused credit facility. In February 2002, the Company repaid
its $20.0 million of Senior Notes bearing a fixed rate of interest at 8.6%, and
entered into a new $30.0 million five-year unsecured credit facility. At
September 29, 2002, there was no outstanding balance related to this credit
facility. The Company used excess cash and proceeds from investments to repay
its $20.0 million 8.6% Senior Notes that matured on February 15, 2002.

         The Company's effective income tax rate was 43.0% and 2.4% in 2002 and
2001, respectively. The Company adjusted its cumulative effective tax rate for
fiscal 2001 to be 54.0%. As a result of this adjustment, the effective tax rate
for the third quarter 2001 resulted in a rate of 2.4%. The effective income tax
rate varies due to the Company's level of profitability and permanent income tax
differences.


NINE MONTHS ENDED SEPTEMBER 29, 2002 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 2001

         Revenues decreased to $181.8 million for the nine months ended
September 29, 2002, from $224.3 million for the same nine month period in 2001,
a 19.0% decrease. The decline in revenues is primarily due to the Company's
continued shift away from vehicles sold under the purchase agreement method.
Vehicles sold under the purchase agreement method accounted for less than 10.0%
of the total vehicles sold in the first nine months of 2002, versus
approximately 21.0% for the same period last year. Fee income for the nine
months ended September 29, 2002, increased 7.9% to $123.5 million versus $114.5
million for the same nine month period in 2001. Gross proceeds from the sale of
salvage vehicles at auction were $572.7 million during the nine months ended
September 29, 2002, an increase of $61.3 million, or 12.0% over the nine months
ended September 30, 2001.

         Cost of sales decreased $44.3 million to $148.3 million for the nine
months ended September 29, 2002, versus $192.6 million for the same period last
year. Vehicle cost of $53.5 million is $50.1 million less than last year's
amount of $103.6 million. This decrease is primarily related to the Company's
shift away from vehicles sold under the purchase agreement method. Branch cost
of $94.8 million increased $5.8 million from $89.0 million for the same period
last year. This increase, occurring primarily in the first half of the year, is
the result of incremental variable cost associated with higher unit volumes
along with operating costs related to new branch facilities.

         Gross profit increased 5.4% to $33.4 million for the nine months ended
September 29, 2002, from $31.7 million for the comparable period in 2001.

         Selling, general and administrative expense of $20.3 million for the
nine months ended September 29, 2002 decreased $0.4 million from the same period
in 2001 amount of $20.7 million. This overall

                                       11
<PAGE>

decrease is the result of increased expenses in sales and marketing being offset
by lower information services and general overhead expense.

         Amortization of intangible assets decreased significantly from $3.0
million in the first nine months of last year to $0.2 million in the current
year period. See Note 6 of notes to condensed consolidated financial statements
above for further discussion of this change.

         Business transformation costs for the nine months ended September 29,
2002 were $6.3 million versus $0.8 million in the same period last year.
Business transformation costs include expenses related to the systems redesign
project, the business process re-engineering project, severance costs and
accelerated depreciation associated with the Company's existing computer
infrastructure. The Company began recording business transformation costs during
the second quarter of 2001.

         Interest expense decreased to $0.8 million for the nine months ended
September 29, 2002, from $1.4 million for the comparable period in 2001.
Interest income decreased to $0.2 million for 2002 from $0.9 million in 2001. In
February 2002, the Company repaid its $20.0 million of Senior Notes bearing a
fixed rate of interest at 8.6%, and entered into a new $30.0 million five-year
unsecured credit facility. Interest expense in 2002 includes a $0.5 million
non-cash charge related to the Company's interest rate swap associated with the
new line of credit.

         The Company's effective income tax rate was 43.0% and 54.0% in 2002 and
2001, respectively. The effective income tax rate varies due to the Company's
level of profitability and permanent income tax differences.


FINANCIAL CONDITION AND LIQUIDITY

         At September 29, 2002, the Company had current assets of $72.3 million,
which includes $16.6 million of cash and cash equivalents. Current liabilities
were $46.7 million. The Company had working capital of $25.6 million at
September 29, 2002, a $0.4 million increase from December 30, 2001.

         At September 29, 2002, the Company's long-term debt consisted of $0.1
million in notes payable, bearing interest at a rate of 8.0%. Other long-term
liabilities include a post-retirement benefits liability that relates to the
acquisition in 1994 of Underwriters Salvage Company. The amount recorded at
September 29, 2002 for the post-retirement benefits liability is $2.8 million.

         In the second quarter of 2002, the Company entered into a capital lease
arrangement to secure new computer equipment required as part of the Company's
new operating system. The capital lease terms are for three years or less
depending on the nature of the equipment. At September 29, 2002, the Company's
total future obligation under the capital lease is $3.2 million.

         In February 2002, the Company's $20.0 million Senior Notes matured.
This debt was repaid with available cash and proceeds from investments. The
Company also entered into a new five-year $20.0 million unsecured credit
facility that was expanded to $30.0 million in the second quarter of 2002. The
credit facility is a one-year revolver that converts into a four-year term loan
carrying a variable rate based on LIBOR. During the first quarter of 2002, the
Company entered into an interest rate swap to mitigate its exposure to interest
rate fluctuations.

         Capital expenditures were $9.6 million for the nine months ended
September 29, 2002. These capital expenditures include capitalization of certain
development costs related to the Company's new information system, along with
various branch improvements including upgrades to existing branches and the
addition of capacity in key markets. The capital expenditure amount excludes the
$3.6 million total amount related to the capital lease agreement entered into
during the second quarter of 2002.

         In September 2000, the Company's Board of Directors authorized the
purchase of up to 1,500,000 shares of its common stock. Purchases may be made
from time to time in the open market, subject to the requirements of applicable
laws, and if made will be financed with existing cash and cash equivalents,
marketable securities, and cash from operations. As of September 29, 2002, the
Company had not purchased any shares pursuant to this authorization.

                                       12
<PAGE>

         The Company believes that cash generated from operations will be
sufficient to fund capital expenditures and provide adequate working capital for
operations for the next twelve months. Part of the Company's plan is to pursue
continued growth, possibly through new facility start-ups, acquisitions, and the
development of new claims processing services. At some time in the future, the
Company may require additional financing. There can be no assurance that
additional financing, if required, will be available on favorable terms.

FACTORS THAT MAY AFFECT FUTURE RESULTS

         The Company operates in a changing environment that involves a number
of risks, some of which are beyond the Company's control. The following
discussion highlights some of these risks.

         Quarterly Fluctuations. The Company's operating results have in the
past and may in the future fluctuate significantly depending on a number of
factors, some of which are more significant for sales under the purchase
agreement method. These factors include, but are not limited to: fluctuations in
Actual Cash Value ("ACV" - the estimated pre-accident fair value of the vehicle)
of salvage vehicles, changes in the market value of salvage vehicles, delays or
changes in state title processing, general weather conditions, changes in
regulations governing the processing of salvage vehicles, and attendance at
salvage auctions. As a result, the Company believes that period-to-period
comparisons of its results of operations are not necessarily meaningful and
should not be relied upon as any indication of future performance. In addition,
revenues for any future quarter are not predictable with any significant degree
of accuracy, while the Company's expense levels are relatively fixed. If revenue
levels are below expectations, operating results are likely to be adversely
affected. Due to all of the foregoing factors, it is likely that in some future
quarters the Company's operating results will be below the expectations of
public market analysts and investors.

         Quality and Quantity of Inventory Available from Suppliers. The Company
is dependent upon receiving a sufficient number of total-loss vehicles as well
as recovered theft vehicles to sustain its profit margins. Factors which can
affect the number of salvage vehicles received include the reduction of policy
writing by insurance providers, which would affect the number of claims over a
period of time, and changes in direct repair procedures that would reduce the
number of newer less-damaged total-loss vehicles that tend to have higher
salvage values. Decreases in the quality and quantity of inventory, and in
particular the availability of newer and less-damaged vehicles, may negatively
impact further the purchase agreement method of sale and may have a material
adverse effect on the operating results and financial condition of the Company.

         Competition. Historically, the automotive salvage industry has been
highly fragmented. The Company competes with vehicle processors or other salvage
pools for the supply of salvage vehicles from vehicle suppliers. Regional
salvage pools generally process vehicles under the fixed fee consignment method
and generally do not offer the full range of services provided by the Company.
The Company believes that publicly-held, Copart, Inc. is a significant
competitor. Copart competes with the Company in most of its geographic markets.
Due to the limited number of vehicle suppliers, competition is intense for
salvage vehicles from Copart and regional suppliers. It is also possible that
the Company may encounter further competition from existing competitors and new
market entrants that are significantly larger and have greater financial and
marketing resources. One such competitor is ADESA Corporation, a subsidiary of
Allete Inc. Other potential competitors could include used car auction
companies, providers of claims software to insurance companies, certain salvage
buyer groups and insurance companies, some of which presently supply auto
salvage to the Company. While most insurance companies have abandoned or reduced
efforts to sell salvage without the use of service providers such as the
Company, they may in the future decide to dispose of their salvage directly to
end users. There can be no assurance that the Company will be able to compete
successfully against current or future competitors or that competitive pressures
faced by the Company will not have a material adverse effect on its operating
results and financial condition.

         Dependence on Key Insurance Company Suppliers. Historically, a limited
number of insurance companies have accounted for a substantial portion of the
Company's revenues. For example, in 2001, vehicles supplied by the Company's
three largest suppliers accounted for approximately 39.0% of the Company's unit
sales. The largest suppliers, State Farm Insurance, Farmers Insurance, and
Allstate, each


                                       13
<PAGE>

accounted for approximately 15.0%, 15.0%, and 9.0%, respectively, of the
Company's unit sales. A loss or reduction in the number of vehicles from any of
these suppliers, or adverse change in the agreements that such suppliers have
with the Company, could have a material adverse effect on the Company's
operating results and financial condition.

         Purchase Agreement Method. Under the purchase agreement method of sale,
the Company is required to purchase, and the insurance company and other
non-insurance company suppliers are required to sell to the Company, virtually
all total-loss and recovered theft vehicles generated by the supplier in a
designated geographic area. The agreements are customized to each supplier's
needs, but typically require the Company to pay a specified percentage of a
vehicle's ACV, depending on the vehicle's age and certain other conditions,
including whether the vehicle is a total-loss or a recovered theft vehicle. The
Company assumes the risk of market price variation for vehicles sold under a
purchase agreement, and therefore works to enhance the value of purchased
vehicles in the selling process. Revenue recorded in vehicle sales is the actual
selling price of the vehicle. Associated buyer fees are recorded in fee income.
Because the Company's purchase price is fixed by contract, changes in ACVs or in
the market or auction prices for salvage vehicles have an impact on the
profitability of the sale of vehicles under the purchase agreement method. If
increases in used car prices and ACVs are not associated with a corresponding
increase in prices at salvage auctions, there can be a negative impact on the
profitability of purchase agreement sales. The Company has included adjustment
and risk-sharing clauses in certain of its purchase agreement contracts to
provide some protection to the Company and its customers from unexpected,
significant changes in ACVs that are not accompanied by a comparable increase in
sales prices. At the end of 2001, the Company began exiting many of its purchase
agreement contracts. In 2001 and 2000, respectively, approximately 19.0% and
26.0% of the units processed by the Company were processed through the purchase
agreement method of sale.

         The Company has renegotiated certain purchase agreements, converting
them to either the percent of sale or fixed fee consignment method of sale. The
Company continues to shift away from vehicles sold under the purchase agreement
method. Vehicles sold under the purchase agreement method accounted for
approximately 10.0% of all vehicles sold through September 29, 2002 versus
approximately 21.0% of all vehicles sold in the first nine months of 2001.

         Business Process Re-engineering Project. During the third quarter 2001,
the Company retained Synergetics Installations Worldwide, a consulting firm
based in New Hampshire, to assist the Company in its process of creating and
applying new standards and best practices in an effort to improve operational
efficiency, standardize processes, and implement tools to measure performance
within critical areas of field operations. At the end of the fourth quarter, the
Company completed its best practices model. In the first quarter 2002, the
Company began rolling out the new procedures in approximately half of its
branches. The Company completed the rollout of the procedures before the end of
the second quarter 2002. The Company has temporarily retained a small number of
Synergetics employees working together with a task force of Company employees to
ensure uniform compliance with the new procedures in the branches. This task
force should complete its operational audit of the branches by the end of the
fiscal year 2002. The total costs of Synergetics' services should be
approximately $2.5 million. The Company anticipates cost savings of at least
$5.0 million a year resulting from this project.

         Enterprise-Wide System Redesign Project. Also in 2001, the Company
retained the services of SEI Information Technology to develop a new
enterprise-wide application to manage the salvage and auction process. The new
Web-based system will support and streamline vehicle registration and tracking,
financial reporting, transaction settlement, vehicle title transfer, and
branch/headquarters communications. It will speed all aspects of the Company's
operations, support growth and expansion plans, provide improved reliability and
maintainability, and ultimately, deliver increased profits. The estimated cost
of $10.0 million includes equipment, telecom, training, and implementation along
with application development. The Company projects cost savings from the
Business Process Re-engineering Project and the Enterprise-Wide System Redesign
Project at a minimum of $10.0 million, and potentially as much as $15.0 million
annually, from the two projects combined. Development of the application began
in the third quarter of 2001 and continued through the third quarter 2002. The
Company began rolling out the new system to its branches during the second
quarter in its Appleton, Wisconsin branch and expects to complete the roll out
in the remaining branches by the first quarter 2003. There are, however,
inherent risks including but not limited to: data conversion, telecom
infrastructure, operational effectiveness and the decline in productivity during
the rollout period associated with both the business process reengineering



                                       14
<PAGE>

project and systems redesign project that could adversely impact the Company's
expected results as they relate to timing, costs, effectiveness and cost
savings.

         Governmental Regulation. The Company's operations are subject to
regulation, supervision and licensing under various federal, state and local
statutes, ordinances and regulations. The acquisition and sale of totaled and
recovered theft vehicles is regulated by state motor vehicle departments in each
of the locations in which the Company operates. Changes in law or governmental
regulations or interpretations of existing law or regulations can result in
increased costs, reduced salvage vehicle prices and decreased profitability for
the Company. In addition to the regulation of sales and acquisitions of
vehicles, the Company is also subject to various local zoning requirements with
regard to the location of its auction and storage facilities. These zoning
requirements vary from location to location and may prevent the Company from
entering into or remaining in markets deemed desirable. Failure to comply with
present or future regulations or changes in existing regulations could have a
material adverse effect on the Company's operating results and financial
condition.

         Provision of Services as a National or Regional Supplier. The provision
of services to insurance company suppliers on a national or regional basis
requires that the Company expend resources and dedicate management to a small
number of individual accounts, resulting in a significant amount of fixed costs.
The operation of a referral based national network service, in particular, has
required the devotion of financial resources without immediate reimbursement of
such expenses by the insurance company suppliers.

         Expansion and Integration of Facilities. The Company seeks to increase
sales and profitability through acquisition of other salvage auction facilities,
new site expansion and the increase of salvage vehicle volume at existing
facilities. There can be no assurance that the Company will continue to acquire
new facilities on terms economical to the Company or that the Company will be
able to add additional facilities on terms economical to the Company or that the
Company will be able to increase revenues at newly acquired facilities above
levels realized prior to acquisition. The Company's ability to achieve these
objectives is dependent on, among other things, the integration of new
facilities, and their information systems, into its existing operations, the
identification and lease of suitable premises, and the availability of capital.
There can be no assurance that this integration will occur, that suitable
premises will be identified or that additional capital will be available to fund
expansion and integration of the Company's business. Any delays or obstacles in
this integration process could have a material adverse effect on the Company's
operating results and financial condition. Furthermore, the Company does not
have unlimited sources of additional capital available for acquisitions,
expansions and start-ups. The Company's ability to integrate and expand its
facilities will depend on its ability to identify and obtain additional sources
of capital to finance such integration and expansion. In the future, the Company
will be required to continue to improve its financial and management controls,
reporting systems and procedures on a timely basis and expand, train and manage
its employee work force. The failure to improve these systems on a timely basis
and to successfully expand and train the Company's work force could have a
material adverse effect on the Company's operating results and financial
condition.

         Volatility of Stock Price. The market price of the Company's common
stock has been and could continue to be subject to significant fluctuations in
response to various factors and events, including variations in the Company's
operating results, the timing and size of acquisitions and facility openings,
the loss of vehicle suppliers or buyers, the announcement of new vehicle supply
agreements by the Company or its competitors, changes in regulations governing
the Company's operations or its vehicle suppliers, environmental problems or
litigation.

         Environmental Regulation. The Company's operations are subject to
federal, state and local laws and regulations regarding environmental
protection. In the salvage vehicle auction industry, large numbers of wrecked
vehicles are stored at auction facilities. While being stored, minor spills of
fuel, motor oils and other fluids may occur resulting in possible soil, surface
water or groundwater contamination. Certain of the Company's facilities may also
generate and/or store petroleum products and other hazardous materials like
waste solvents and used oils. Expenditures for preventative, investigative or
remedial action may occur and the Company may be exposed to liability arising
from its operations, contamination by previous users of certain acquired
facilities or the disposal of waste at off-site locations. The Company believes
that it is in compliance in all material respects with applicable environmental
regulations and does not anticipate any material capital expenditure for
environmental compliance or remediation. Environmental laws and regulations,
could become more stringent, however, and there can be no assurance that future
expenditures


                                       15
<PAGE>

or liabilities for preventative or remedial action would not have a
material adverse effect on our results of operations and financial condition.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

         The Company's investments are exposed to certain market risks inherent
with such assets. This risk is mitigated by the Company's policy of investing in
securities with high credit ratings and investing through major financial
institutions with high credit ratings. At September 29, 2002, the Company did
not have any outstanding investments.

         The Company is exposed to interest rate fluctuations on its floating
rate $30 million credit facility. As of September 29, 2002, the Company did not
have any outstanding balance related to this credit facility. The Company has
entered into a interest rate swap to mitigate its exposure to interest rate
fluctuations, and does not, as a matter of policy, enter into hedging contracts
for trading or speculative purposes. The interest rate swap agreement has a
notional amount of $30.0 million under which the Company pays a fixed rate of
interest of 5.6% and receives a LIBOR-based floating rate. The Company recorded
a non-cash charge of $0.5 million and benefit of $0.1 million in the second
quarter and third quarter, respectively, related to the change in fair value for
a portion of its interest rate swap agreement. This portion of the swap
agreement does not qualify for hedge accounting. The Company also recorded $0.1
million and $0.5 million in the second quarter and third quarter, respectively,
for an accumulated comprehensive loss related to the change in fair value of the
remaining portion of its interest rate swap agreement. This portion of the swap
agreement does qualify for hedge accounting.

ITEM 4.  CONTROLS AND PROCEDURES


     a.  Evaluation of Disclosure Controls and Procedures

         Based on an evaluation of the Company's disclosure controls and
         procedures conducted within 90 days of the date of filing this report
         on Form 10-Q, the Company's Chief Executive Officer and the Chief
         Financial Officer have concluded that the Company's disclosure controls
         and procedures, as defined in Rules 13a-14 and 15d-14 promulgated under
         the Securities Exchange Act of 1934, are effective.


     b.  Changes in Internal Controls

         The Company is in the process of rolling out a new enterprise-wide
         application to manage the salvage and auction process. The new system
         contains many changes and enhancements to the existing control
         procedures. Completion of the new system roll-out is expected by the
         end of the first quarter of 2003.



                                       16
<PAGE>



PART II. OTHER INFORMATION.

ITEM 1.  LEGAL PROCEEDINGS.  Inapplicable

ITEM 2.  CHANGES IN SECURITIES.  Inapplicable

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.  Inapplicable

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.  Inapplicable

ITEM 5.  OTHER INFORMATION.  Inapplicable

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.

         (a)    EXHIBITS.

                99.1     Certification pursuant to Section 906 of the
                         Sarbanes-Oxley Act of 2002.

         (b)    REPORTS ON FORM 8-K. No reports on Form 8-K were filed during
                the fiscal quarter ended September 29, 2002.

                                       17
<PAGE>



                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.


                                      INSURANCE AUTO AUCTIONS, INC.




Date: November 13, 2002               By: /s/ Scott P. Pettit
      -----------------                   --------------------------------------
                                      Name:  Scott P. Pettit
                                      Title: Senior Vice President and
                                             Chief Financial Officer
                                             (Duly Authorized Officer and
                                             Principal Financial Officer)

                                       18
<PAGE>





                      CERTIFICATION PURSUANT TO SECTION 302
                        OF THE SARBANES-OXLEY ACT OF 2002
  (PURSUANT TO RULE 13a-14 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED)

I, Thomas C. O'Brien, certify that:

1.   I have reviewed this quarterly report on Form 10-Q of Insurance Auto
     Auctions, Inc.;

2.   Based on my knowledge, this quarterly report does not contain any untrue
     statement of a material fact or omit to state a material fact necessary to
     make the statements made, in light of the circumstances under which such
     statements were made, not misleading with respect to the period covered by
     this quarterly report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this quarterly report, fairly present in all
     material respects the financial condition, results of operations and cash
     flows of the registrant as of, and for, the periods presented in this
     quarterly report;

4.   The registrant's other certifying officer and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a) designed such disclosure controls and procedures to ensure that material
     information relating to the registrant, including its consolidated
     subsidiaries, is made known to us by others within those entities,
     particularly during the period in which this quarterly report is being
     prepared;

     b) evaluated the effectiveness of the registrant's disclosure controls and
     procedures as of a date within 90 days prior to the filing date of this
     quarterly report (the "Evaluation Date"); and

     c) presented in this quarterly report our conclusions about the
     effectiveness of the disclosure controls and procedures based on our
     evaluation as of the Evaluation Date;

5.   The registrant's other certifying officer and I have disclosed, based on
     our most recent evaluation, to the registrant's auditors and the audit
     committee of registrant's board of directors;

     a) all significant deficiencies in the design or operation of internal
     controls which could adversely affect the registrant's ability to record,
     process, summarize and report financial data and have identified for the
     registrant's auditors any material weaknesses in internal controls; and

     b) any fraud, whether or not material, that involves management or other
     employees who have a significant role in the registrant's internal
     controls; and

6.   The registrant's other certifying officer and I have indicated in this
     quarterly report whether or not there were significant changes in internal
     controls or in other factors that could significantly affect internal
     controls subsequent to the date of our most recent evaluation, including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.


Date:  November 13, 2002              /s/ Thomas C. O'Brien
       -----------------              ------------------------------------------
                                      Thomas C. O'Brien, Chief Executive Officer


                                       19
<PAGE>
                      CERTIFICATION PURSUANT TO SECTION 302
                        OF THE SARBANES-OXLEY ACT OF 2002
  (PURSUANT TO RULE 13a-14 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED)

I, Scott P. Pettit, certify that:

1.   I have reviewed this quarterly report on Form 10-Q of Insurance Auto
     Auctions, Inc.;

2.   Based on my knowledge, this quarterly report does not contain any untrue
     statement of a material fact or omit to state a material fact necessary to
     make the statements made, in light of the circumstances under which such
     statements were made, not misleading with respect to the period covered by
     this quarterly report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this quarterly report, fairly present in all
     material respects the financial condition, results of operations and cash
     flows of the registrant as of, and for, the periods presented in this
     quarterly report;

4.   The registrant's other certifying officer and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a) designed such disclosure controls and procedures to ensure that material
     information relating to the registrant, including its consolidated
     subsidiaries, is made known to us by others within those entities,
     particularly during the period in which this quarterly report is being
     prepared;

     b) evaluated the effectiveness of the registrant's disclosure controls and
     procedures as of a date within 90 days prior to the filing date of this
     quarterly report (the "Evaluation Date"); and

     c) presented in this quarterly report our conclusions about the
     effectiveness of the disclosure controls and procedures based on our
     evaluation as of the Evaluation Date;

5.   The registrant's other certifying officer and I have disclosed, based on
     our most recent evaluation, to the registrant's auditors and the audit
     committee of registrant's board of directors;

     a) all significant deficiencies in the design or operation of internal
     controls which could adversely affect the registrant's ability to record,
     process, summarize and report financial data and have identified for the
     registrant's auditors any material weaknesses in internal controls; and

     b) any fraud, whether or not material, that involves management or other
     employees who have a significant role in the registrant's internal
     controls; and

6.   The registrant's other certifying officer and I have indicated in this
     quarterly report whether or not there were significant changes in internal
     controls or in other factors that could significantly affect internal
     controls subsequent to the date of our most recent evaluation, including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.


Date:  November 13, 2002                /s/ Scott P. Pettit
       -----------------                ----------------------------------------
                                        Scott P. Pettit, Chief Financial Officer

                                       20
<PAGE>

                                  EXHIBIT INDEX


EXHIBIT NO.
-----------



99.1     Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002





                                       21